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U.S. military contractors prepare for possible budget cuts

Lockheed Martin, Northrop Grumman and Boeing could lay off thousands of aerospace workers and cancel supplier contracts if Congress doesn't agree by January on reducing the federal deficit.

June 26, 2012|By W.J. Hennigan, Los Angeles Times
  • Rep. Buck McKeon, right, Chairman of the House Armed Services Committee, shakes hands with workers at Northrop Grumman in Palmdale this spring.
Rep. Buck McKeon, right, Chairman of the House Armed Services Committee,… (Al Seib, Los Angeles Times )

The nation's military contractors say they are preparing to shut facilities, tear up supplier contracts and issue pink slips to thousands of aerospace employees to deal with proposed federal budget cuts threatening to hit Pentagon spending.

After a decade of heady growth amid the military buildup following Sept. 11, 2001, contractors had already braced themselves for $487 billion in cuts over the next decade. But an additional $500 billion in cuts are now being discussed in Washington.

The new cuts are part of an automatic round set to take effect in January if Congress fails to reach an agreement on reducing the mounting federal deficit.

Although there is much speculation about whether Congress would let those automatic cuts actually occur in January, military contractors are ringing alarms now. Pentagon boosters in Congress, including Rep. Howard "Buck" McKeon (R-Santa Clarita), chairman of the House Armed Services Committee, are also issuing stark warnings.

In an interview, McKeon said that many of the nearly 113,000 aerospace jobs — and thousands from supply shops — in California could be hurt. "Congress is playing political chicken with people's jobs," he said. "The clock is ticking."

The automatic cuts would come if a budget deal fails to emerge in Washington. Under a law approved last year, federal funds of all kinds would be held back — "sequestered" — until there is agreement, at which time the funds may or may not be reinstated. Congress passed an amendment last week, calling on the Obama administration to specify which federal programs would be affected.

The buzzword used by contractors is "sequestration," and aerospace workers and subcontractors will be hearing that word a lot in the months ahead.

The Aerospace Industries Assn., a trade and lobbying organization in Arlington, Va., has estimated that 1 million jobs of all kinds nationwide, including 126,000 in California, would be lost if sequestration occurs.

Still, there is skepticism about whether sequestration will take place. If it happens, it would affect both military, which is a core issue for Republicans, and social spending, which is important to Democrats, said John Pike, director of Globalsecurity.org, a website for military policy research.

"Because of the convergence of these two things, I have a hard time believing that sequestration will go forward," he said. "I have tended to think the whole thing is smoke and mirrors."

Meanwhile, military contractors are trying to raise awareness and drum up support. It's essential, they said, because they are required by law to issue warnings to employees and suppliers when their jobs and contracts are in danger of elimination.

Robert J. Stevens, chief executive of Lockheed Martin Corp., the world's largest defense firm, told reporters last week that current law requires the company to warn employees of layoffs with a notice 60 to 90 days before they're let go. That means notices could be sent out as early as September.

"The single greatest challenge faced by our company and by our industry, for which we have no good response, is sequestration," he said.

Stevens anticipated that the cuts could affect a significant portion of its 123,000-employee workforce and many of its 40,000 equipment suppliers.

"I suspect that on one level it might be flattering to believe that our industry is so robust, so durable, so as to absorb the impact of sequestration without breaking stride. But this is fiction," he said.

There have already been layoffs related to budget cuts. Lockheed cut about 1,500 jobs across its aeronautics business, including in California. Northrop Grumman Corp. slashed 500 jobs in its aerospace division, which is spread throughout the Southland.

The National Assn. of Manufacturers, which represents many aerospace suppliers across the country, said that sequestration would cause a loss of 1.01 million private-sector jobs, including 130,000 manufacturing jobs, by 2014.

Chicago aerospace giant Boeing Co. confirmed that it has done scenario planning, including a worst-case trillion-dollar sequestration cut over 10 years, but it would not discuss the details of those scenarios.

Randy Belote, a spokesman for Northrop of Falls Church, Va., said his company has also put together plans.

"While the outcome of that debate remains uncertain, we have formulated contingency plans for the possibility of sequestration occurring in January 2013," he said. "The implementation of sequestration as presently mandated could have a very serious negative impact on our company, our industry and, of course, on the defense capacity of our nation."

william.hennigan@latimes.com

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